The Gas War is on and Putin’s Russia is feeling the heat
The last ten days have sent shivers across the EU gas market and witnesses a much-awaited response from US LNG. More than 20 tankers are heading to Europe and 14 more are following suit, subject to orders and destination.
While it is true that these cargoes may not have a lasting effect as the volumes might not be enough (in the order of 5 bcm) to offset speculative moves by Gazprom, the US LNG has resulted in rapid and steady decline of hub prices, despite Gazprom attempt to limit supply by not booking capacity on the Yamal-Europe pipeline for 9 days in a row. Moscow continues to escalate the situation as Russian gas has started to flow eastward from Germany to Poland.
Russian gas dominates EU’s gas supply, but US LNG plays a critical role in denying shock surge of price, effectively denying Moscow the panic tool needed to subdue EU resistance to Nord Stream-2 and Kremlin’s aggressive bullying of Ukraine.
Gazprom deliberately picked Christmas to shatter European gas hub prices and impress European leaders with the sudden reality check of the degree of their dependence on Russian gas.
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It is also true that US LNG traders are primarily moved by price premiums in Europe, €82/MWh in Asia to € 196/MWh in Europe, rather than a missionary motive to save desperate allies.
However, the important message is that the US has the capability to intervene and secure basic levels of gas security in Europe, should the US government decide to engage in a strategic “Gas for Democracy” program. The US has the resources, it is the largest gas producer, i.e. the global swing producer with production levels that could reach 1 trillion cubic meters in 2022, and the capacity to deliver. What’s missing is the will and the decision to do so. The LNG joint purchase and shared gas storage are areas where the EC could lead building on the joint COVID-19 vaccines experience.
The US-Russia gas war is on and the latest US LNG flotilla might have greater impact on Moscow’s moves than USS Harry Truman’s deployment in the Mediterranean.
The looming gas storage crisis in Europe brings to the fore the indispensable role of LNG to balance the gas market and deny Russia geopolitical gains. The vivid proof is that Poland, Spain and Portugal, all heavily dependent on LNG, are the only EU countries with enough stored gas.
Mr Putin started a gas war he can’t win.
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